What is the Journal Entry for Prepaid Expenses?

Journal Entry for Prepaid Expenses

Prepaid expenses are those expenses which are paid in advance for a benefit yet to be received. It acts like an asset and considers the rules “debit the increase in asset” and “credit the decrease in expenses” (modern approach).

 

The journal entry for prepaid expenses involves two accounts: prepaid expense a/c and expense a/c.

 Prepaid Expense A/C  Debit
   To Expense A/C  Credit

 

 

Example

Let’s assume that in March 10,000 are paid in advance for rent which is due in the following month, i.e. April. The journal entry to record this in March will be

 Prepaid Rent A/C  10,000
   To Rent A/C  10,000